As a private investor, your ability to make sound judgments about people, properties and deals is often based on your instincts and experience. This often comes after years of making transactions, dealing with people, and knowing the market.
However, even a novice investor knows that in order for a deal to be successful, the base collateral must be worth the risk and involvement. While some may think their own determinations on the value of a property will suffice, the most successful private investors know that in order to mitigate risks, valuations are best left to a certified, competent professional with local market knowledge and experience that will give a fair and unbiased appraisal.
Here are a few reasons why hiring a professional, local appraiser is so important to the private investor.
For appraisers who make their careers in the profession, real estate valuation is their sole business. They conduct appraisals and write reports every day, knowing how to both uncover and incorporate all the contributing factors and elements necessary to determine a property’s worth.
The Appraisal Institute (AI) is a national industry organization that has set forth Standards for Professional Appraisal Practice for the valuation industry. In addition to holding a college degree, the most competent AI members have gone through 350 hours of additional educational training and have 4,500 hours of practical experience. AI awards its highest-performing members with key designations such as MAI and SRA.
One of the key elements of a professional valuation is a thorough examination of comparable properties, or “comps” in the area. Only an appraiser who knows the specific area, and is familiar with properties similar to the property being evaluated will have the expertise and ability to properly determine its correct value, based on those comps, and other local market conditions specific to that region.
This local knowledge, or geographic competency, is so important to the AI that it takes disciplinary action against any member that fails to “have the knowledge and experience to complete the assignment competently…” thereby violating the AI’s Code of Professional Ethics.
Areas Of Specialty
All properties are different, just as all investment opportunities are different. As a private investor, you will protect your interests by hiring an appraiser who not only has years of experience and industry designations, but one who also has the background and expertise valuating your specific type of property, and performing the work you need done.
For instance, not all appraisers that do residential valuations also have the knowledge and experience conducting appraisals for commercial, multi-family, retail, special purpose, or industrial properties. Additionally, not all appraisers perform the same valuation services such as delivering reports for financing, inheritance tax, equitable distribution, expert testimony, and more.
The most skilled and comprehensive appraisers engage in continuing education to properly service all of their clients, and stay on the forefront of changing laws and regulations. For instance, in order to help their members know how to fairly conduct eminent domain appraisals, the AI offers courses such as “Uniform Appraisal Standards for Federal Land Acquisitions” that its most well-rounded appraisers participate in.
Trust An Appraiser For An Unbiased Opinion
Some private investors may be tempted to use only a real estate salesperson to determine the value of a property. It’s important to note that in New Jersey, Realtors need only have a high school diploma and 75 hours of a prelicensure course in order to begin selling properties in the state.
While many reputable real estate agents are very qualified to offer opinions on market evaluations related to a property, only a qualified and experienced appraiser can prepare a thorough property valuation based on many specific details, including those market conditions.
Real estate agents often pull comps just as appraisers do. Yet appraisers have no dog in the game, so to speak, with no commission to make dependent upon the market value of the property. By definition, appraisers are hired to give objective opinions on the property’s value, and must be credentialed by the state of New Jersey. Moreover, appraisers will use other data gleaned from additional public records resources to determine a property’s value.
Read a brief history on the Appraisal Institute.